oil advances as israel bombs lebanon

Oil Advances as Israel Bombs Lebanon, Nigeria Rebels Attack Supply Convoy

July 14 (Bloomberg) -- Crude oil rose for a fourth day, surpassing $78 a barrel for the first time, as concern mounted that violence in the Middle East and Nigeria will cut off supplies.

Israel's air force bombed Lebanon for a third day. Iran, embroiled in a dispute with the United Nations over its nuclear research, warned Israel against expanding the conflict. Chevron Corp. today said 40 workers in Nigeria, Africa's largest oil exporter, were released after being held for a day by kidnappers.

``I'm not going to say we're going to $100 a barrel right away, but neither am I going to rule it out,'' said Peter Beutel, the president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``If events drag Iran into the situation and it deteriorates to the point that they want to block the Straits of Hormuz, and we get a hurricane, yes, we will see $100.''

Crude oil for August delivery rose as much as $1.70, or 2.2 percent, to $78.40 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was trading for $77.54 at 12:47 p.m. in London, a gain of about 27 percent so far this year.


Futures markets don't expect prices to fall. Oil for delivery in December rose as high as $81 a barrel today.

In London, the Brent oil contract for August settlement, which expires today, rose 70 cents, or 0.9 percent, to $77.39 a barrel on the London-based ICE Futures exchange. The more active September contract climbed 69 cents, or 0.9 percent to $77.88 a barrel.

``We used to trade crude oil at $20 to $22 a barrel and if we were ever to fathom that $60, $70 oil wouldn't cramp demand -- that's just hard to believe,'' said James Cordier, the president of Liberty Trading Group in Tampa, Fla. ``Now we are at $80. Drivers for the 4th of July season were driving like they've never before. Demand globally is excellent and there is no end in sight.''

Oil's Gains

Oil has gained about 6 percent in four straight sessions. Prices rose after the U.S. and its allies said they will refer their dispute over Iran's nuclear research to the United Nations Security Council. They also gained after a government report showed U.S. oil and gasoline stockpiles fell more than expected last week.

Crude oil may rise from a record next week on concern the conflict in the Middle East will disrupt shipments from the region, according to the Bloomberg News survey. Twenty of 34 analysts and traders, or 59 percent, said prices will rise. Five projected a decline and nine said futures will be little changed. Last week 68 percent predicted an increase, the most bullish response in a year.

``We're only a few headlines away'' from $100-a-barrel oil, said Scott MacDonald, a partner at Stamford, Connecticut-based Aladdin Capital Management LLC. ``A few cruise missiles, a few bombs going off, more partners getting involved in the process in the Middle East. All those things nudge oil higher.''

Conflict in Lebanon

In Lebanon, 55 people were killed and 160 wounded in the past two days, said a Lebanese police spokesman, who asked not to be identified. Hezbollah militants have fired about 140 rockets into northern Israel in the past 48 hours, including one that reached Haifa, Israel's third-largest city, late yesterday, the army said. Two civilians were killed.

The conflict began when Hezbollah raiders crossed the border into Israel, killing three soldiers and kidnapping two more. It threatened to spread yesterday, after Israeli Foreign Ministry Deputy Director General Gideon Meir said Israel has ``specific information'' Hezbollah planned to move the abducted soldiers to Iran, which with Syria supports the terrorist group.

Iranian President Mahmoud Ahmadinejad told Israel not to take action against Syria, Agence France-Presse reported, citing Iranian state television. ``This will be the same as an aggression against the entire Islamic world,'' Ahmadinejad told Syrian President Bashar al-Assad, according to the report.

`Worrying and Dangerous'

``The international community and the UN must intervene to stop this crime,'' Iranian Foreign Minister Manouchehr Mottaki said today in Athens. ``The situation in Palestine and Lebanon is worrying and dangerous'' and ``has created great concern,'' he said in remarks translated into Greek from Farsi.

``The thing that concerns a great many of us is if something were to happen with this conflagration involving Israel, Hamas, Hezbollah,'' Cameron Hanover's Beutel said. If Iran gets involved in the conflict, it may ``retaliate by blocking the Straits of Hormuz, embargoing its own oil, doing almost anything.'' Almost a quarter of the world's oil flows through the strait.

Iran's Ahmadinejad also threatened yesterday to end cooperation with international bodies monitoring its nuclear program, after the dispute was referred to the UN Security Council. At the same time, he said Iran wants the dispute resolved ``calmly'' and will respond to a European Union initiative by mid- August. Iran is the world's fourth-largest oil supplier and controls access to the Persian Gulf.

Workers Freed

In Nigeria, Chevron, the second-largest U.S. oil company, said the kidnapped contractors were set free yesterday morning after being held overnight by kidnappers. The workers were in a convoy of 11 boats traveling between Warri and Escravos and were accompanied by five security vessels, said Michael Barrett, a London-based Chevron spokesman.

Prices rose early yesterday after the Guardian, citing oil company workers, said Nigerian Agip Co. could lose 120,000 barrels of output a day because the company had shut three pumping stations to contain a spill. The Guardian said rebels attacked the pipeline.

Rome-based Eni said losses from damage to its oil network were ``irrelevant'' and the problem would be repaired soon. Reports the pipelines had been attacked were ``without any foundation,'' Eni said. It did not explain what caused the damage.

Conflict in Nigeria this year has cut oil output as much as 631,000 barrels a day. The nation accounts for about 10 percent of crude oil imports to the U.S., where refiners favor its low-sulfur product for gasoline.

Royal Dutch Shell Plc alone has halted about 473,000 barrels a day of production after a series of attacks since January, according to Caroline Wittgen, a spokeswoman at the company.

Expensive Gasoline

Gasoline for August delivery rose 1.72 cents, or 0.8 percent, to $2.3185 a gallon in after-hours trading in New York. It rose 2 percent to $2.3013 yesterday, 31 percent more than a year earlier and the highest close since Sept. 28.

Before this week, gasoline had spent three months trading between $1.95 and $2.30 a gallon. Oil ranged from $67.22 to $75.78 a barrel.

UBS AG, Europe's largest bank by assets, today raised its forecast for oil New York-trade oil to $68.4 a barrel this year up from an earlier forecast of $64 because of supply disruptions and demand growth. The bank raised forecast for the crude to $69 a barrel next year up from a $66 estimate earlier, according to its e-mailed report.

Gasoline demand in the U.S., the world's biggest oil user, has exceeded 9.6 million barrels a day the past two weeks, a July 12 Energy Department report showed. Demand reached a record 9.72 million barrels last July.

Daily demand the past four weeks is 1.7 percent higher than a year earlier, the department said.

To contact the reporter on this story:
Eduard Gismatullin in London at
[email protected]